Belgium lags neighbours in sustainability

Economic opinion

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Since 2002, we have calculated the sustainability profile of countries on an annual basis. This calculation serves as the basis for the investment choices in government bonds for KBC’s SRI (socially responsible investment) funds. Although Belgium is among the 50% best-scoring developed countries, its place in the general country ranking compared to relevant peers, such as neighbouring countries, is less rosy. Moreover, for two of the five themes examined (‘General economic performance and stability’ and ‘Environmental performance and commitment’), Belgium is among the 50% worst performing countries in the screening exercise. It is important that the Belgian government takes its sustainability performance to heart. After all, countries that invest in the sustainable promotion of the welfare of their citizens lay the foundations for favourable and stable political-economic development in the future.

We define a country’s sustainability as “the set of achievements, institutions and policy efforts that promote the well-being of the current and future population in a sustainable manner, without compromising the well-being of populations in other countries and the environment”. To measure it, we use a scoring model based on five themes: (1) Overall economic performance and stability, (2) Socio-economic development of the population, (3) Equality, freedom and rights of the population, (4) Environmental performance and commitment, and (5) Security, safety and international relations. Each theme is in turn subdivided into three sub-indicators. A detailed description of the screening approach, as well as the most recent country ranking of developed countries (the KBC Sustainability Barometer 2020), can be found in a new KBC Research Report published together with this opinion. 

Belgium’s relative sustainability performance deserves extra attention. The good news is that Belgium belongs to the group of 50% best-performing countries that qualify for inclusion in KBC’s SRI investment universe. More precisely, in the latest update of the country screening, Belgium obtains a 14th place out of a total of 44 countries considered (that is the OECD countries supplemented by the (candidate) EU member states that are not members of the OECD). That is an unchanged position compared to the previous calculation at the end of 2019. It is in itself a good result, but when we compare Belgium with more relevant peers such as its neighbouring countries, Belgium’s sustainability performance is less rosy. Especially the Netherlands and Germany, but also France, do better, with 6th, 9th and 12th place respectively in the latest ranking. Within the eurozone, there are countries, especially in Southern Europe, that score (much) worse than Belgium. But even compared to the average ranking of the eurozone countries (15th place), Belgium’s score is mediocre.   

Figure 1 shows the relative performance of Belgium compared to its three neighbouring countries since the KBC Sustainability Barometer was first calculated in 2002. The additional countries taken into account in successive annual screening exercises (e.g. because the required figures became available) are not included in the figure so as not to distort the comparison with previous years. Belgium consistently scored worse than the Netherlands and Germany over the entire period 2002-2020. The position towards France was alternately worse or better, but since 2017 the Belgian score has also been below that of France.

When we zoom in on the five sustainability themes, Belgium’s position in the country ranking is the highest (7th place) for the 5th theme (‘Security, peace and international relations’) (see Table 1). This is mainly due to its strong international openness, as reflected in the ‘Index of Globalisation’. But for the sub-indicator ‘Commitment to development’, which measures the countries’ international development aid, Belgium scores notably lower than its neighbours. For the 3rd theme (‘Equality, freedom and rights of the population’), the Belgian score is still reasonably good (16th place), also in comparison with the neighbouring countries except for the Netherlands. What is striking about this theme is the large gap between Belgium’s very good performance in the area of inequality among the population and its very poor performance in terms of ease of doing business. Also for the 2nd theme (‘Socio-economic development of the population’), Belgium, with an 18th place, still scores reasonably well within the 44 countries considered. However, the score is once again worse than the Dutch and German scores due to the weak result for the indicator that measures the performance and policy efforts with regard to education and labour participation of the population.

Relative underperformance

Belgium’s score is not good for the 1st theme (‘General economic performance and stability’) and downright bad for the 4th theme (‘Environmental performance and commitment’). With a poor 23rd and 29th place respectively in the ranking, Belgium is among the 50% worst performing countries in the screening exercise for both themes. For the sub-indicators of the 1st theme, Belgium scores manifestly worse than the Netherlands and Germany. Not only are the past economic performance and imbalances much better in those two countries, also the future economic potential and the quality of the institutions there are (much) better than in Belgium. For the three sub-indicators of the 4th theme, Belgium’s performance is always (significantly) worse than that of all three neighbouring countries. It is clear that Belgium still has a long way to go in the area of the environment if it wants to leave behind its relatively unsatisfactory score. 

Countries that invest in the sustainable promotion of their citizens’ well-being thus lay the foundations for favourable and stable political-economic development in the future. The sustainability ranking of countries, in combination with the traditional ratings of credit rating agencies, is thus a powerful tool for assessing the risk of government bonds and making better-informed investment decisions. It is therefore important that the Belgian government takes its sustainability performance to heart.    

Disclaimer:

Any opinion expressed in this KBC Economic Opinions represents the personal opinion by the author(s). Neither the degree to which the hypotheses, risks and forecasts contained in this report reflect market expectations, nor their effective chances of realisation can be guaranteed. Any forecasts are indicative. The information contained in this publication is general in nature and for information purposes only. It may not be considered as investment advice. Sustainability is part of the overall business strategy of KBC Group NV (see https://www.kbc.com/en/corporate-sustainability.html). We take this strategy into account when choosing topics for our publications, but a thorough analysis of economic and financial developments requires discussing a wider variety of topics. This publication cannot be considered as ‘investment research’ as described in the law and regulations concerning the markets for financial instruments. Any transfer, distribution or reproduction in any form or means of information is prohibited without the express prior written consent of KBC Group NV. KBC cannot be held responsible for the accuracy or completeness of this information.

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